Monetary Policy Strategies for the Federal Reserve

Lars Svensson

No 14247, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper finds that the general monetary policy strategy of "forecast targeting" is more suitable for fulfilling the Federal Reserve's dual mandate of maximum employment and price stability than following a simple "instrument" rule such as a Taylor-type rule. Forecast targeting can be used for any of the more specific strategies of annual-inflation targeting, price-level targeting, temporary price-level targeting, average-inflation targeting, and nominal-GDP targeting. These specific strategies are examined and evaluated according to how well they may fulfill the dual mandate, considering the possibilities of a binding effective lower bound for the federal funds rate and a flatter Phillips curve. Nominal-GPD targeting has substantial both principal and practical disadvantages and is found to be inferior to the other strategies. Average-inflation targeting is found to have some advantages over the other strategies.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Monetary Policy Strategies for the Federal Reserve (2020)
Working Paper: Monetary Policy Strategies for the Federal Reserve (2020)
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